Buying Versus Renting: Why Buying is the Better Choice

 In Blog, Uncategorized

 

Murray BredeThere is a huge controversy surrounding the advantages and disadvantages of renting and buying a home. In this article, we will cover some reasons why buying a home is better than renting one. We will also discuss cases that make renting a more viable choice.

The False Argument

Those who recommend renting over buying a home use a false argument, which may be mathematically correct but involves a faulty premise.

This argument starts with an example of a very high-income person who is looking to either buy or rent a home worth 1 million dollars. Supporters of the argument would show that buying the home requires a deposit  of around 20% or $200,000. They would then proceed to explain that this value could instead be invested, through which it would be compounded and equate to a higher value in the next 30 years. This explanation is meant to highlight how buying a house is a bad investment.

What they fail to factor in is the increasing cost of rent each year, the down swings in the market, and the fact that in reality, the average person is not actually buying a 1 million dollar house.

The Attribution Error

Another common error is the attribution of current market conditions to the future. As the world fights its way out of the global slowdown, more people have chosen to rent homes because of loss of income and because banks are not lending as much money to clients of Australian mortgage brokers. The issue in this case is that those who have chosen to rent homes believe that this trend will continue in the years to come. However, no facts can support such belief.

Renting is Throwing Money Away

One truth that is hard to escape is the fact that renting is basically throwing money away. In simple words, renting is paying for a service. However, after 30 years of paying rent, renters have absolutely nothing to show for it. Renters do not build equity, they do not receive the same tax savings as homeowners do, and they do not receive an in-built down payment via having earned equity before selling and purchasing a new home.

Home Ownership is like an Automatic Savings Plan

For the average person, the greatest investment that they will ever have is their home. Homes are expensive, given that they take 15 to 30 years to pay. However, within this period, the value of a home increases, its owners receive equity, and the home becomes an automatic savings/investment, for which owners only need to make monthly mortgage payments. Home ownership naturally builds wealth and has long been considered as a commendable achievement. Being a homeowner has greater bearing than being a renter, with renters making their landlords rich and with homeowners making themselves wealthy.

Home Ownership Protects Your Family

Another added benefit of home ownership is the protection it offers to your family. The in-built savings mechanism of owning a house provides money to your family when you are no longer around. Having your own home also provides equity lines of credit for times when cash is low. In cases of financial difficulties, your home can be sold for profit to help your family. In sum, a paid off home is something that can remain in the family for generations.

With the explanation presented above, can anyone really say that renting is bad? Well, renting does not have all the benefits of buying, but there are conditions in which renting a home makes more sense than buying one.

Renting makes sense for those who are just about to enter the job market and those who have yet to determine a permanent area of residence. Renting also makes sense when a person has bad credit and is in the process of rebuilding his credit.

Meanwhile, buying a home makes the most sense when a person is settled, when he expects to remain in an area for a long time, and when he wants to take advantage of the benefits of home ownership.

Should you find yourself torn between buying and renting a home, consider the factors described in this article and proceed to assessing your current conditions so that you can determine which route is most ideal for you.

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